The EURGBP Technical Speaking

By FX Empire Analyst - Barry Norman
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The EUR/GBP pair extended the downtrend of the previous days. During most of the European trading session sterling had also a very good run against the dollar.

Earlier this week, the National Institute of Economic Research released their estimate for the UK's 2nd Quarter Gross Domestic Product at -0.2%. The initial figure suggests that the UK economy has now been shrinking for 9 months. However, the results are considered to have been affected by the diamond jubilee, and it is thought that without the extra bank holiday the economy could have actually grown by 0.2% instead. The NIESR concluded that over the last 2 years the UK economy has remained "broadly flat."

Rachel Reeves, Labor's shadow chief secretary to the Treasury, described the forecasts as "very concerning and disappointing," and used the estimates as an opportunity to criticize the Coalition government's austerity drive:

"Britain is one of only two G20 countries in a double-dip recession, long-term unemployment is soaring and so borrowing is now going up. That's why we need a change of course and a real plan for jobs and growth."

There were no important eco data in the UK yesterday. Late in the European trading session, cable fell also prey to profit taking as global sentiment on risk weighed. This move put floor for the EUR/GBP cross rate too. EUR/GBP rebound off the 0.7871 low and closed the session at 0.7894, unchanged from the previous day. 

Today, there are again no important eco data in the UK. Of late, sterling has run a very strong course and the EUR/GBP dropped below several support levels. As is the case for EUR/USD, the euro downtrend is well in place. However also for this cross rate we have the impression that the move is losing some momentum.

The technical charts also give some kind of doji-like signal, suggesting that the trend might be a bit exhausted short-term. So, we don’t change our fundamental euro negative bias, but in a day-to-day perspective, there might be room for some consolidation or even a cautious countermove. Short term profit taking/stop loss protection can be considered. 

From a technical point of view, the EUR/GBP cross rate was recently captured in a consolidation pattern following a longstanding sell-off that started in February and ended Mid-May when the pair set a correction low at 0.7950. From there, a rebound/short squeeze kicked in. Continued trading above the 0.8100 area would call off the downside alert and improve the short-term picture. The pair tried several times to regain this area, but there were no follow-through gains.

Lately we looked to sell into strength for return action to the 0.7950 range bottom. This first target has been met. Sustained trading below this level opens the way to the next high profile support, in the 0.77 area (Oct 2010 lows). The pair is oversold and there are indications that the decline is a bit exhausted short-term.

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